Saturday, August 18, 2012

The Lok Satta Party today suggested imposition of a windfall profits tax on private parties which will profit enormously from the allocation of a public natural resource like coal for captive mining.

Addressing a media conference, Lok Satta Party President Dr. Jayaprakash Narayan appealed to political parties, Parliament and the Government to consider his proposal instead of indulging in acrimonious allegations and counter allegations over the CAG (Comptroller and Auditor General) report on allocation of coal blocks to private parties.

Dr. JP said that allocation of coal blocks to private parties for captive mining cannot be faulted as the public sector Coal India has miserably failed to meet the demand for coal and forced the country to spend precious foreign exchange on import of coal from countries like Indonesia, Australia and South Africa. The shortfall between demand and supply is as much as 100 million tons a year, notwithstanding the fact that the country has reserves to last 600 years.

According to the CAG report, the difference between the cost of production and market price in 2010-11 worked out to Rs.295 per ton. Since the difference fetches undue returns to private parties, the Government could legitimately levy a tax on such windfall profits. Britain had imposed such a tax when it allocated natural gas blocks in the North Sea. The tax could be levied in all cases where beneficiaries of public natural resources make huge profits.

Dr. JP said that allocations of coal blocks to private parties could not be cancelled like the licenses for 2-G spectrum. The Supreme Court upheld the Lok Satta contention that 2-G spectrum licenses were granted arbitrarily and capriciously.

The coal blocks already allotted cannot be cancelled as the beneficiaries have invested hundreds of crores of rupees on their development for captive use in power generation. Cancellation at this stage will cripple the economy as it will aggravate the ongoing power crisis throughout the country. All the allottees have legitimate coal requirements and the mines are being developed for captive purpose.

As far as independent power projects (IPPs) with power purchase agreements with Governments are concerned, the fuel cost is a pass through item, and therefore all benefit of coal mining should automatically be passed on to Electricity Boards.

Dr. JP suggested that all natural resources including coal should hereafter be allocated on the basis of competitive bidding. Even as it allocates resources like coal, the Government should ensure that the beneficiaries do not face problems like environmental clearances and delays in commissioning power projects.

On the permission given to Delhi International Airport Limited (DIAL) for collection of developmental charges, Dr. JP said that a committee of experts should go into such practices elsewhere in the world as development of infrastructure by private parties entailed huge investments with uncertain returns.